آیا تمرکز مالکیت نتایج M & A را در بازارهای نوظهور بهبود می بخشد؟ شواهدی از هند

Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggests that while ownership concentration may reduce the manager–owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.

In this paper, we extend the literature on (and hence add to our understanding of) two different, yet related, phenomena. Our main contribution is to the literature on mergers and acquisitions (M&As). In the early literature on M&As, a large proportion of the empirical studies concluded that M&As fail to add value or contribute to the financial well being of the acquiring firm.1 A dominant explanation of the inability of the average M&A to add to the performance of the acquiring firm is the well-known agency conflict – i.e., divergence of interests – between managers and owners, whereby managers of the firm take decisions that are not necessarily in the best interests of the shareholders (Shleifer and Vishny, 1988).2 The premise that M&As do not create value for the acquiring firm, on average, has since been brought into question. Netter et al. (2011), for example, have argued that this observation about the outcome of M&As could be an artefact of the samples that were used in the earlier literature, which focused on M&As involving larger publicly traded companies.3 We extend this literature by examining another aspect of the stylised discussion, namely, the aforementioned agency conflict between managers and owners. We examine the impact of concentration or ownership in the hands of insiders such as business promoters and directors on M&A outcomes in India, where such concentration of ownership is commonplace, generally by way of family businesses and business groups. We hypothesise that concentration of ownership in the hands of insiders will ameliorate agency conflict between managers and owners, and therefore have a positive impact on post-M&A firm performance, either because the insiders will then have a greater incentive to monitor the managers or, as is more likely in the context of India, these insiders themselves will then be involved in making strategic and managerial decisions for the firms. Our analysis extends that of Yen and Andre (2007), and complements the growing literature on the relationship between management ownership and firm value in emerging market economies, which indicates that a firm's value may be positively affected by concentration of ownership in the hands of insider-managers (Ryu and Yoo, 2011). Our analysis also has implications for the wider literature on corporate governance. It has long been argued that in contexts (largely ignored in Yen and Andre's analysis)4 where ownership concentration coexists with weak corporate governance mechanisms, the agency conflict between managers and owners is merely replaced by another type of agency conflict, whereby (the generally concentrated) ownership structures persist to facilitate expropriation of small or minority shareholders by the large or majority shareholders such as promoters and families (Villalonga and Amit, 2006 and Young et al., 2008).5 In the words of Villalonga and Amit (2006), in such firms, Agency Problem I (between managers and owners) is mitigated, but it is replaced by Agency Problem II (between large or majority shareholders and small or minority shareholders). Fan et al. (2011), however, have argued that it is conceptually difficult to attribute the persistence of certain ownership structures solely to expropriation, and that there could be other reasons for such persistence such as potential financing benefits ( Almeida and Wolfenzon, 2006 and Almeida et al., 2011). In an argument similar to that of Netter et al. (2011), it has also been suggested that the popular wisdom about expropriation in family businesses and business group affiliated firms that have concentrated ownership is an artefact of sample selection. Hamelin (2011), for example, does not find any evidence of expropriation in small business groups. If the popular wisdom about the aforementioned Agency Problem II in firms with concentrated ownership is accurate, strategic decisions such as M&As that divert a firm's resources away from disbursal among shareholders would be expected to lead to (sometimes unobservable) benefits to the majority shareholders, 6 without adding to firm performance that can benefit all shareholders in the long run. Therefore, should we observe that concentration of ownership in the hands of insiders such as promoters and directors improves post-M&A firm performance (as hypothesised), it would be a refutation of any presumption of a causal link between ownership concentration in the hands of insider-majority shareholders and presence of agency conflict between large (or majority) shareholders and small (or minority) shareholders. In other words, if the null hypothesis about the positive impact of ownership concentration on M&A outcomes cannot be rejected, it would be reasonable to conclude that while ownership concentration reduces Agency Problem I (between managers and owners) that may be responsible for adverse M&A outcomes in a large number of cases, it does not necessarily trigger Agency Problem II (between large or majority and small or minority shareholders) that often co-exists with non-pecuniary benefits for large or majority shareholders and is to the detriment of the small or minority shareholders. By juxtaposing the two types of agency problems, and drawing on evidence from India, an emerging market economy where ownership concentration by way of family ownership and business group affiliation is ubiquitous and where corporate governance quality is weak, we also enhance our understanding of the basic structural and behavioural differences between firms in emerging markets and developed economies. As argued by Fan et al. (2011), this is one the key directions in which future research should be extended. Our results suggest that during the 1995–2000 period, post-M&A profitability of the average firm in India was positively correlated with high degrees of ownership concentration (i.e., greater than 50% of the shares) in the hands of its directors. We also find that in the 2001–2004 period, while ownership concentration in the hands of foreign promoters enhanced post-M&A profitability — in contrast to the findings of Zhou et al. (2011), ownership concentration in the hands of Indian promoters did not have any impact on post-M&A firm performance. A cautious interpretation of the more reliable regression results for the 2001–2004 period is that while ownership concentration may reduce Agency Problem I (between managers and owners), it may increase Agency Problem II (between large or majority and small or minority shareholders), such that ownership concentration in the hands of insiders may not necessarily improve M&A outcomes. This interpretation, which is reasonable for a context with low quality of corporate governance, is inconsistent with the limited evidence (almost entirely from developed countries) about the impact of ownership concentration on M&A outcomes ( Yen and Andre, 2007), and with the evidence about the relationship between ownership concentration and firm value ( Ryu and Yoo, 2011). However, it is consistent with the view of Fan et al. (2011) that emerging market firms may be fundamentally different from developed country firms, such that firm characteristics such as ownership concentration may have quite different implications for these two types of firms. The rest of the paper is structured as follows: In Section 2, we discuss the data, emphasising the relevant aspects of ownership structures in India. In Section 3, we present the empirical strategy. The results are reported and discussed in Section 4. Finally, Section 5 concludes.

The literature on M&A suggests that most M&As fail to improve the performance of the acquiring firm because of agency conflicts between managers and owners, the so-called Agency Problem I. If a M&A is undertaken by a firm with concentrated ownership, therefore, post-M&A performance of the acquiring firm should improve, unless ownership concentration results merely in substitution of Agency Problem I with agency conflict between large (or majority) shareholders and small (or minority) shareholders (or Agency Problem II). Yet, the literature on the impact of ownership concentration on M&A outcomes is very limited, and therein lies the contribution of this paper. The paper also sheds light on structural and behavioural aspects of emerging market firms, which are arguably the key directions in which future research should be extended. Specifically, we examine the relationship between ownership concentration and M&A outcomes using firm-level data from India, a country where family ownership and business group affiliation of firms, both of which result in ownership concentration, are ubiquitous. Our results suggest that significant ownership concentration in the hands of company directors may improve post-M&A performance — a result that should be treated with some caution, but that ownership concentration in the hands of domestic promoters and persons acting in concert does not have any impact on the M&A outcome. By contrast, at least for the 2001–2004 period, ownership concentration in the hands of foreign promoters improves post-M&A performance. A cautious (or pessimistic) interpretation of the insignificant impact of ownership concentration in the hands of domestic promoters and PAC in the more reliable analysis of 2001–2004 M&A events is that, at least in contexts where corporate governance quality is weak, ownership concentration may merely result in replacement of Agency Problem I with Agency Problem II, such that ownership concentration in the hands of insiders may not necessarily improve M&A outcomes.